My personal blog about international trade, public policy & politics, pop culture, and stuff that probably interests only me

Tuesday, October 11, 2011

FTA Round-up

With both the House and Senate poised to vote on, and approve, pending US FTAs with Colombia, Korea and Panama tomorrow, it seemed like a good time to provide some recent must-read items to get you caught up to speed:

The Competitive Enterprise Institute just issued a great new study documenting the Obama administration's failed - and economically harmful - strategy of delaying ratification of our pending FTAs in order to appease US labor unions (through, for example, revised FTA obligations, side agreements and reauthorization of expanded TAA). CEI provides good support for something that I've been saying here for years: placating anti-traders, especially unions, is a fool's errand.

Speaking of economically harmful delay of these FTAs, the Korea Herald reports that the recently-ratified EU-Korea FTA (started years after the still-pending US-Korea FTA) is reaping major benefits for European carmakers. Good for them.

However, as the FT's Alan Beattie explains in this new op-ed, the economic value of these FTAs shouldn't be oversold, and their final ratification has come at a pretty big price. He concludes: "The US, along with all countries that trade – poor and middle-income as well as rich – is presented with a complex array of interlocking issues by the operation of globalisation: technological change, migration, exchange rates, capital movements and geopolitical power politics, as well as flows of goods and services. Reducing the globalisation debate to passing three bilateral trade deals – at the cost of adding momentum to a potentially dangerous currency bill – is a very long way from being a proportionate response. In net terms, this was a bad week in Washington for free trade and real free-traders should recognise it."

Jagdish Bhagwati takes a different, but kinda similar, angle, lamenting that "Congress and the president apparently have plenty of time to discuss bilateral FTAs with South Korea, Colombia, and Panama, as well as the regional Trans-Pacific Partnership (TPP), but none for negotiating the non-discriminatory Doha Round, which is languishing in its tenth year of talks."

Not to be outdone, Australian Marc-William Palen actually goes a bit further than Beattie and Bhagwati and argues that the FTAs' price tag - TAA - shows that the President is, deep-down, a protectionist.

Speaking of the FTAs' price tag, the CBO released its cost estimates for the Korea, Colombia and Panama implementing legislation. The Korea report is by far the most interesting, as it shows that the FTA's implementing legislation includes almost $8.5 billion in new customs users fees - $4.1 billion in extensions and, more importantly, $4.3 billion in increased merchandise processing fees because the FTA implementing legislation raises the fee from 0.21% to 0.3464% of a shipment's value. I've already gone over why raising taxes on American import consumers to fund a free trade agreement is really misguided, but I do think it's very interesting that the revised KORUS legislation includes an exemption from these new fees for imports from Korea. Colombia and Panama legislation provides for a similar exemption. So, really, Korean, Colombian and Panamanian imports into the US will get a double benefit from the respective FTAs - lower tariffs and cheaper customs fees. Unfortunately, US consumers of non-Korean/Panamanian/Colombian imports will be left holding the tab, and the FTAs' overall trade liberalization benefits will be muted. Sigh.

Finally, AEI's Phil Levy explains that, although the FTAs should definitely help the US economy, their tortuous path to final implementation is indicative of the sad state of US trade leadership. Yep.

4 comments:

1) Maybe I should have said "labor union" instead of "labor unionS" - he clearly renegotiated the KORUS auto provisions for the USW (and their corporate bosses, of course). This little plan may have cost US exporters and consumers billions in needless tariffs and lost competitive opptys, but it bought the President some sweet, sweet political cover to say ridiculous things like "This FTA has unprecedented support from US labor unions." Awesome.

2) The rest of the unions didn't follow along with the USW because, well, they're labor unions. Unless they received as sweet a protectionist gig as the USW, they were NEVER going to support the agreement. Maybe Obama knew this and was truly aiming to snag just the USW (see above), but judging by his repeated trade appeasmeent of unions and other anti-trade groups (despite their continued protectionist demands), I'm not so sure. Maybe he truly believed in the power of his union-convincing awesomeness. Certainly wouldn't be the first time that he overestimated his rhetorical and strategic prowess.

I think you meant UAW. As for Obama's hyperbole, I think he's at least factually correct in saying the union support was "unprecedented," in that two unions, the UAW and UFCW, supported KORUS. I'm not sure that's ever happened before. However, I won't argue that that wasn't misleading.